Abstract
Thesia I. Garner, Javier Ruiz-Castillo, and Mercedes Sastre (2002) "The
Influence of Demographics and Household Specific Price Indices on
Consumption Based Inequality and Welfare: A Comparison of Spain and
the United States."
Previous research suggests that income inequality is lower in Spain
than in the U.S. This paper studies whether this ranking remains
the same when household consumption expenditures are used as a proxy for
household welfare. Both inequality and social welfare, as components of
economic well-being, are examined. Total household expenditures from each
country's 1990-91 consumer expenditure survey are used as the basis for
the analysis. For tractability, equivalence scales depend only on the
number of people in the household and not any other demographic
characteristic. Household specific price indices are used to express the
1990-91 expenditure distributions at winter of 1981 and winter of 1991
prices. Decomposable measurement instruments are used both for the
inequality and social welfare analyses. Bootstrap methods are used to
produce confidence intervals for all estimates.
When consumption expenditures are substituted for income as the measure
of economic well-being, the ranking of Spain and the U.S. varies as both
household size and the equivalence scale adjustment change. When focusing
on household size alone, inequality and welfare comparisons are
drastically different for smaller and larger households. The income
inequality ranking can only be maintained for expenditure distributions
when economies of scale are assumed to be small or non-existent. However,
welfare is always higher in the U.S. than in Spain. It is concluded that
household demographic characteristics, as well as equivalence scale
adjustments, can be very important in international comparisons. With
regard to household-specific relative price effects, inflation during the
1980s in both countries has been essentially neutral from a distributional
point of view, so that all results are robust to the choice of time
period.
Last Modified Date: July 19, 2008
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